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Andersons Upgraded to Outperform

On Sep 6, we upgraded our recommendation on The Andersons, Inc. (ANDE) to Outperform based on its impressive second-quarter 2013 performance.

Why the Upgrade?

Andersons, on Aug 6, reported revenues of $1.57 billion in the second quarter, up 19% year over year. The results were way ahead of the Zacks Consensus Estimate of $1.38 billion.

Earnings per share rose 1% year over year to $1.57 and beat the Zacks Consensus Estimate by 5 cents. The upbeat results were driven by record operating profit at Ethanol and Rail Group, and increased profit in Retail Group. Andersons delivered positive earnings surprises in two of its last four quarters with an average beat of 48.13%.

Ethanol Group generated record operating income of $10.6 million in the second quarter versus a loss of $2.1 million in the year-ago quarter. The improvement came on the back of improved ethanol margins and increased co-product income. In addition, Rail Group posted record operating income of $24.3 million in the first half of 2013.

In Sep 2013, Andersons finalized the purchase of railcar repair and cleaning provider Mile Rail, LLC. The acquisition will enhance Andersons’ current railcar repair network by expanding its geographical footprint and business mix. Furthermore, the Mile Rail acquisition is expected to increase Andersons’ railcar repair revenues by 25%.

Following the release of second quarter results, Zacks Consensus Estimates for 2013 and 2014 have gone up 3.3% and 6.7%, respectively, to $4.13 per share and $5.26 per share, respectively. With earnings estimates for both 2013 and 2014 are moving up, Andersons now retains a Zacks Rank #1 (Strong Buy).

Even though the Grain group will likely remain affected by the 2012 drought and the Turf & Specialty group by additional expenses, Andersons expects continuous focus on operational efficiency, co-product production and cost control to bode well for Ethanol Group. The Rail Group will benefit from increased financing opportunities, higher railcar lease rates, larger railcar fleet and expansion of the railcar repair business.

Other Stocks to Consider

Amira Nature Foods Ltd. (ANFI) and Pilgrim's Pride Corporation (PPC), both carrying a Zacks Rank #1 (Strong Buy), and Gruma S.A.B. de CV (GMK) with a Zacks Rank #2 (Buy), are performing well in the similar industry and are also worth considering.